Concerns Linger As Global Changes Affect Real Estate; Property Insurance
With uncertainty looming across all industries due to the global economy
, property owners are grappling with the issues that will define the real estate industry over the next ten to thirty years. Property insurance rates may very well be affected by changes occurring in the global community. Ten things many believe will affect real estate pricing are outlined here.
1.Aging population
The aging of the population may have a major impact on the real estate markets from housing, retail, health care, and the myriad of factors that define the success of different geographic areas.
2.Funding of public employee retirement systems
Underfunding of local and state retirement plans in the trillions of dollars provides extreme challenges to the provision of basic services critical to real estate properties and markets.
3.Student debt
Student college debt averages $45,000 per student with a total that exceeds consumer debt for the first time.
4.Infrastructure funding and U.S. competitiveness
Public-private partnerships with governments are being viewed as potential replacements for federal funding of the next generation of needed infrastructure improvements.
5.Changing office and retail demand
Due to increased use of technology and acceptance of alternative work systems, radical reductions in office space use by larger occupants is expected, and similar changes in retail as Internet buying changes the role of bricks and mortar retail space, causing a decline in the need for rental
property insurance.
6.Real estate capital markets liquidity
Capital limitations on banks as a result of Dodd-Frank legislation and existing over allocations to real estate, concerns about the scale of return of the CMBS market, hundreds of billions of dollars of real estate loans that must be refinanced in the next seven years, as well as growing capital demands by other sectors of the economy, will create continuing uncertainty over access to capital.
7.Global change and uncertainty
The political gridlock and budget crisis in the U.S., the European financial crisis, the slowdown of Chinas economy, uncertainty and slow growth in the Middle East make uncertainty about the future a certainty.
8.Integration of sustainability
Sustainability has moved beyond a gimmick and become part of corporate governance, management and reporting systems, supply chains, and the basic functioning of many companies, increasing the value of sustainable property
investment. Real estate businesses may need to adapt in order to keep up.
9.Low cap rates
Cap rates for core properties are back to levels from five years ago. What happens if interest rates increase and cap rates decompress? Has the industry set itself up for another disastrous value decline?
10.Civil discord and political gridlock
Many of the key issues and challenges require broad consensus to solve. Will there be greater cooperation, or will political gridlock continue?
Answers to these, and many other issues will be critical to determining the future of the real estate industry as well as societies of the world.
by: Clarence S. Frazier
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